What Australian Lenders Look at When Assessing Your Borrowing Capacity as an Expat
The information contained within does not constitute financial, legal, or tax advice. Reach out to a qualified professional to discuss your specific circumstances before making investment decisions.
Every expat purchase starts with one question, and it is not "which suburb?" – it’s generally "how much can I actually borrow?"
Borrowing capacity is the first gate. It sets your budget, and your budget sets your options. Get it wrong and you either shop above your reach or, more often, well below it, leaving capacity and a better asset on the table.
We asked Shona Stephenson - Co-founder and Mortgage Broker at Australian Expat Finance, to explain how Australian lenders assess an expat borrower. Think of your borrowing capacity as step one in the purchasing process. What you do with that number; knowing where and what asset is worth buying, and how the property fits into your overall strategy is the part CORALA handles. More on that at the end.
Over to you, Shona.
The following was written by Shona Stephenson - Co-founder and Mortgage Broker at Australian Expat Finance.
One of the most common questions we hear from Australian expats looking to invest back home is: "How do Australian lenders work out how much I can borrow?"
At its core, every lender must comply with Australia's Responsible Lending obligations. They need to be satisfied that you can comfortably afford the loan, not just today, but also if interest rates rise in the future.
While it may sound as simple as income minus expenses, there is a lot more happening behind the scenes. Let's look at the key factors.
1. Your Overseas Income
Most Australian expats are paid in a foreign currency rather than Australian dollars
When lenders convert your income into Australian dollars, they generally discount it by around 20%. This is not because they doubt your income. It is simply a way of allowing for currency fluctuations over the life of the loan.
For example, if your overseas salary converts to AUD $200,000, the lender may assess only around $160,000 for servicing purposes.
2. What Income Will a Lender Accept?
Not all income is treated equally.
Most lenders will accept base salary and permanent employment income. Some may also accept performance bonuses, regular allowances, commission, and restricted share units (RSUs) or share-based remuneration.
Every lender has different policies. One bank may include bonus income; another may ignore it completely. Only a small number will consider share-based remuneration. This is one area where choosing the right lender can make a significant difference to your borrowing capacity.
3. Self-Employed Expats
Self-employed expats face additional challenges. Most major Australian banks do not lend to Australians who are self-employed overseas. These applications are generally limited to specialist or non-bank lenders. Finance is often still available, but interest rates are typically higher than the major banks.
4. Rental Income
If you are purchasing an investment property, lenders will usually include the expected rental income in their assessment. They do not use 100% of it. Most assess around 75% of gross rent, a 25% discount to allow for vacancies, expenses and rental fluctuations.
5. Other Sources of Income
Depending on the lender, other income may also count: dividend income, pension income, investment income, and trust distributions. Again, each lender has its own policy.
6. Your Living Expenses
Unlike income, living expenses are generally not discounted. Lenders usually assess your ongoing commitments: everyday living expenses, overseas rent, school fees, existing loan repayments, credit cards and personal loans. These all reduce the amount available to service a new mortgage.
7. Existing Mortgages
If you already own property overseas with a mortgage, lenders will likely not use your current repayment - instead, they will generally assess that loan at an interest rate around 3.00% higher than your actual rate. This serviceability buffer ensures you could keep paying if rates rise.
8. The New Australian Mortgage
The same principle applies to the loan you are applying for. If your actual rate is 6.00%, the lender will typically assess your repayments at around 9.00%. This significantly increases the assessed repayment and can reduce your borrowing capacity, even though your actual repayments may initially be much lower.
Why Pre-Approval Matters
At first glance, these rules seem restrictive. The good news is every lender has slightly different servicing policies. A lender that declines one application may be comfortable approving exactly the same borrower under its own criteria.
That is why a pre-approval before you start your property search is so valuable. It gives you confidence about your capacity, lets you shop in the right price range, and ensures you are working with a lender whose policies suit your circumstances.
For Australian expats, choosing the right lender can mean a difference of hundreds of thousands of dollars in borrowing capacity. Working with a broker who understands expat lending puts you in the strongest position before you make an offer.
What this means for your Real Estate Strategy
The 20% income haircut and the 3% assessment buffer are not obstacles. They are the shape of the map.
Model your price band (or budget) conservatively, then let borrowing capacity drive suburb selection, not the other way round. Expats routinely over-index on a suburb they know from before they left Australia, then discover their real, buffered capacity points to a stronger asset elsewhere. CORALA works with you to secure your borrowing capacity first, then develop a strategy, then find a property that aligns with your objectives.
Ready to find out where you actually stand?
On borrowing: to explore your capacity before you start searching, talk to Shona at Australian Expat Finance. Phone / WhatsApp +61 417 693 281, or email shona@bestff.com.au.
On real estate strategy: once you know what you can borrow, the harder question is what to buy. CORALA’s expat readiness assessment shows you where you stand across the four key areas that result in a successful purchase from abroad. Take the readiness assessment now →
To have a detailed conversation about your real estate strategy, talk to Paulo Velho at CORALA. Or book a complimentary discovery call here.
Borrowing capacity opens the door. Knowing what to buy, and when, is what makes the purchase worth making.